Economic Recovery - Begin with the Foundation

President-elect Obama is taking the wheel of a ship of state in danger of sinking. From a global perspective, the world outside the United States will no doubt suffer an economic depression that may last the rest of this decade. Rightly, comparisons are being made between The Great Depression and the current meltdown. I expect historians will use our current calamity as the benchmark to compare future downturns.

The World hitched their stars to the US economy and if America is to recovery its predominance in world economic affairs, they will have to lead the way out of the mess - and lead by example. This means that the world will need evidence that the USA is suffering worse than the rest of them. Bubbles and recessions are a part of life, much like the seasons, they provide opportunities for fresh vegetation to grow. It would be easy to blame Alan Greenspan for the mess we are in: He judged people to be adult enough to not eat too much ice cream; and instead, watched as hitherto responsible people gorged their way to obesity and diabetes. But in truth, the problem probably started when the United States and the G7 abandoned the Gold Standard and tied their currency to a US dollar valued by their Gross Domestic Product. This may have made sense when American factories powered the economy, during and after WWII, but made little sense after America stopped producing and became a consumer-based economy.

When the G20 meet in Washington, I expect quite a lot of the discussion will be about the failure of Bretton-Woods II. I doubt whether decisions will be made, this year, concerning a return to the gold standard, or a re-valuing of world currencies based on precious metals, but such discussions will become more prolific as the Global Depression deepens. Interesting, that even after 70 years, economists cannot agree on why the last Great Depression happened. Troubling, that bailouts and other solutions currently being instituted, are exactly what Hoover did in the 1930's.

If Obama is going to rebuild America, "brick by brick", as he said in his acceptance speech, he best make sure the foundation is firm enough to hold more than a ranch style bungalow. The foundation needs to be strong enough to support a skyscraper. This means immediate work at finding a base value for the US dollar, one not based on the greed of a nation, but one based on something tangible. Only then can the real asset value of banks and financial institutions be ascertained and measured against each other. And only then will the world's economies have a solid basis from which to trade with each other and measure their progress.